Stamp Duty Exemption - Property Transfer to Company from Partnership

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    Stamp Duty Exemption - Property Transfer to Company from Partnership

    Hi has anyone got any experience of this? Apparently under schedule 15 of the Finance Act 2003 SDLT is not payable.

    I have a property that is jointly owned between myself and my wife that we are transferring into a limited company where we are each equal shareholders. My solicitor brought this to my attention that this might be the case, although from searching the internet it does not seem straightforward.

    The main point that is not clear to me is whether we are acting as a 'partnership' in order to qualify for this as we have no formal partnership agreement in place and are not registered as a partnership with HMRC. We have a joint business account into which rents and mortgage is paid and the profit is split between us (not always equally) and declared on individual self assessment.

    Any advice or clarity would be very much appreciated.


    #2
    My understanding is that this would be regarded as a sale and subsequent purchase and would attract potential CGT liability over the annual allowances for both of you and the payment by the company of the 3% Stamp Duty Premium Land Tax. I am not qualified as a tax advisor and would suggest speaking with your accountant.

    Comment


      #3
      I am a chartered tax advisor.

      Your solicitor is correct, SDLT is not payable where a partnership transfers assets to a Ltd Co where Schedule 15 FA 2003 is applicable.
      Although, your exact circumstances need to be reviewed to ensure anti-avoidance measures don't come into play.

      HMRC could challenge the availability of Schedule 15 on the basis you have been operating as "co-owners" rather than a partnership. You should consider formalising the partnership ahead of the transaction to assist in the argument that schedule 15 is available. Here is some useful HMRC guidance on the difference between partnership and co-ownership:

      https://www.gov.uk/hmrc-internal-man...-manual/em7002

      Loanarranger is correct in that there could be CGT liabilities arising on the transaction. However, there is potential for this to be mitigated, but again it will depend on your circumstance.

      Hope this helps.

      Comment


        #4
        I have any identical situation and as Sean has rightly indicated , if HMRC gives the green light for the joint ownership to be accepted as a partnership then this could be the forerunner of subsequently transferring the properties into a Limited Company, that said the individuals concerned have been cautioned against doing this by their Chartered Accountant as they have serious concerns over whether the arrangement could fall foul of tax rulings, speculative yes but following consultation with another Chartered Accountant they have decided for the present to put such considerations on hold.

        i remember a number of years ago a company called Rossminster which was a leading light in the structures to mitigate tax, if one Google’s this firm one can read what happened when HMRC bared it’s teeth and the ramifications which subsequently ensued. The system is imperfect and solutions seem very credible until subsequently challenged and who can bet on which way the ruling will go.

        Comment


          #5
          I have the same feeling as Mr Arranger.

          There's no record of these schemes surviving a challenge (or the reverse, to be fair).
          HMRC rulings are retroactive, so tax can suddenly be owed from past transactions.

          None of the schemes I have seen has been able to show that a)it can withstand a HMRC query and b) the basis of the solution is suspect.

          It is almost impossible for a property management partnership to generate enough work to meet the necessary criteria.
          I have a portfolio of several properties which is my main source of income and I don't spend enough time running the business to qualify.
          When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
          Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

          Comment


            #6
            Here is an article about transfer from partnership to company.

            https://www.rrlcornwall.co.uk/wp-con...rtnerships.pdf

            Comment


              #7
              May I go slightly off topic but is perhaps equally important so far as giving consideration of transferring property into a Limited company.

              If a property is to be transferred , the transfer will in all probability require the existing loan to be repaid and a new Limited Company loan effected; this is particularly important for those who currently have long established loans where the reversionary rate is significantly below the margins being levied in today’s market. I have numerous clients where the premium above bank or 3 month Libor is between 0.25% over BBR or 1.5% over Libor. Careful consideration has to be given regarding the cost implications for creating brand new loans , the monthly interest payment differentials taking full account of the potential increases in interest rates.

              Sometimes all that glitters isn’t always gold.

              Comment


                #8
                Jaymondo,

                Are you transferring to Limited company because you and Mrs are both on 40% tax rate ?

                You are not a recognised as a partnership if you are not submitting a partnership return each year .

                https://www.gov.uk/set-up-business-partnership

                Comment


                  #9
                  hello all thanks for replies - very helpful.

                  Gordon - yes pretty much.

                  Comment


                    #10
                    JPKeates, this in't a scheme. This is a statutory relief in the same way that incorporation relief is a statutory relief or many other types of tax relief. The relief is used by all sorts of business that are moving from a partnership to a limited company.

                    I would also point out that in many cases for the landlords that I deal with it is not the case that property is first being transferred from an individual to a partnership and then to a limited company.

                    In most cases the partnership actually acquired the property directly from a third party.

                    The "no motive" test detailed in the article mentioned above, was introduced to counteract an SDLT scheme where by individuals, purchasing their main residence, were setting up partnerships and doing a "sub-sale" to avoid SDLT.

                    As you'll appreciate, that is a tax scheme and abusive, whereas a person deciding to incorporate (which has commercial rationale - limited liability) as well tax savings, has a commercial motive.


                    Comment


                      #11
                      That ignores two issues.

                      The first is that the partnership has to be managing a business - which requires evidence of time spent working, which is not easy to come up with.

                      But, more fundamentally, a partnership can't own property. It can obviously pay for it, but the title has to be held by a person, and a partnership doesn't qualify as a person.

                      There's an argument that a prudent person might try this approach as future growth in asset value might make any future SDLT claim (and even a penalty) trivial in comparison. I just don't find the arguments compelling.
                      When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
                      Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

                      Comment


                        #12
                        Following on from my previous posting , I have this morning received from the said clients a response to the submissions made on their behalf by a firm of Chartered Tax Advisors into gaining recognition of being a Partnership with the intent to subsequently transfer to a Limited Company, from HMRC Individual and Small Business Compliance Complex and Agents, the letter states the following:-

                        "Thank you for your recent correspondence submitted on behalf of the above.

                        HMRC's non-statuatory clearance service is designed to provide certainty on HMRC's interpretation of tax legislation. As the existence of a business is a question of fact and not a question of interpretation of tax legislation I am unable to accept your clearance application

                        ........... Tax Specialist."

                        As one can imagine having paid a significant fee for the work undertaken on their behalf , they feel somewhat down on receiving the negative response from HMRC..

                        Comment


                          #13
                          Jpkeates:
                          1) for the SDLT exemption the partnership doesn't have to be managing a business. You are getting confused with the CGT relief (incorporation relief) which requires a business to be conducted.
                          2)Correct, the legal title cannot be held by a partnership. But the partners can hold the property as a partnership asset.
                          Based on your argument, a partnership could never show property on its balance sheet, which is a nonsense. Ask any chartered accountant.

                          loanarranger:
                          I had heard rumours of HMRC not granting clearance regarding s162 clearance applications. This is a recent change in HMRC policy.
                          Do you have a copy of the letter? If so, would you be so kind to send me a copy (obviously with all confidential information redacted)?

                          Thanks
                          Sean

                          Comment


                            #14
                            Sean
                            i will revert to my client and if he agrees I can send the document, given that I copied everything apart from the name of the writer and the tax references there is nothing to be gleaned. It is clear that this could be a foretaste of what may follow after the Chancellor disclosed last year his concerns over the perceived proliferation in small Limited co’s being created to warehouse property. It may not happen for a while but the future for such matters doesn’t look bright.

                            Comment


                              #15
                              My view is that the clearance is non-statutory - therefore HMRC aren't legally obliged to provide clearance one way or the other by legisaltion (unlike statutory tax clearances for which they are legally obliged to give - such as for share 4 share exchanges) - and given the volume of such clearance applications in recent months, they have ceased providing the clearances.

                              Comment

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